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2 Laws and tax rules have changed in The information here is based on our understanding in August Your personal circumstances also have an impact on tax treatment. This document contains information on: Tax relief and the potential impact of paying over the annual allowance into your pension Income Drawdown Tax on pension funds of over 1.25 million Your retirement options Potential tax charges on death What Pension Input Periods are and how they work We can help you understand how the above might affect you. You should also speak to your financial adviser or tax specialist. 02/12 Information about tax relief, limits and your pension

3 Key facts at a glance Fact all pensions 04 The Annual Allowance for the tax year 2015/16 was 40,000. Following the budget it may be possible to contribute more. 05 You can carry forward unused allowances from the previous three years. 08 Tax on lump sums payable on death where you have reached age 75 is 45%, dropping to marginal rate from 2016/ The Lifetime Allowance is 1.25 million (tax year 2015/16). From tax year 2016/17 this reduces to 1 million ,000 is the limit to claim a pension fund as a lump sum on the grounds of triviality. Fact pensions with a drawdown option 07 From 6 April 2015, the Money Purchase Annual Allowance drops to 10,000 for anyone who accesses pension flexibility and takes anything above their tax-free cash, normally 25% of the fund. 08 Tax on lump sum death benefits from pensions in drawdown depends on your age when you die. Information about tax relief, limits and your pension 03/12

4 Annual Allowance The annual allowance for 2015/16 is 80,000*. For 2014/15 it had been 40,000. For 2012/13 and 2013/14 the annual allowance was 50,000. This includes payments you personally make, payments from your employer and payments from third parties such as family members. Other points to be aware of are: For tax relief purposes personal and third party payments cannot exceed 100% of earnings, even if this is lower than the Annual Allowance. If you have elected for flexi-access drawdown, you can make further pension payments, but your Annual Allowance will drop to 10,000 for anyone who accesses pension flexibility and takes anything above their tax-free cash, normally 25% of the fund. This is known as the Money Purchase Annual Allowance. If you are also a member of a Defined Benefits scheme, your overall annual allowance stays at 40,000 including any Money Purchase Allowance. A variable Annual Allowance tax charge of up to 45% applies to any pension payments above the Annual Allowance. There are only exemptions from the Annual Allowance test on death, serious ill health or severe ill health. From 2016/17 an individual with total income and employer pension contributions that come to more than 150,000 will have a reduced Annual Allowance. The standard 40,000 Annual Allowance will be reduced by 1 for every 2 of income clients have over 150,000 in a tax year, until their allowance reaches 10,000. What is a Pension Input Period? The purpose of a Pension Input Period (PIP) is to identify which tax year s Annual Allowance the payments made in that period will be tested against. Importantly, the pension payments you make in a PIP are checked against the Annual Allowance for the tax year. Unused Annual Allowance from the previous 3 tax years can be carried forward to let you pay more in the current tax year. You can t do this if you are subject to the 10,000 Money Purchase Annual Allowance. See What are the carry forward rules? on page 5. *From April 2016 Pension Input Periods will run in line with tax years. There is now no option to change the end date of a pension input period. However this means you could contribute more than 40,000 this tax year. Following the budget on the 8th July 2015 here s how the transitional PIP rules work: All open (pre-budget) PIPs ended on 8 July 2015 and count against the 2015/16 Annual Allowance. A new (post-budget) 2015/16 PIP will run from 9 July 2015 to 5 April All PIPs are now fixed and can no longer be amended. The 2015/16 tax year is split into two mini tax years either side of the Budget. Any open PIP automatically ends on 8 July A new PIP then starts from 9 July and ends on 5 April You could also have had a PIP already end in the period of 6 April 2015 to 7 July So there could be one or two PIPs that relate to the first part of the year, and just one that relates to the second. The total annual allowance for all the PIPs that relate to the first part is 80,000. The available annual allowance for the PIP that relates to the second part is the remainder of the unused 80,000 from the first part, but up to a maximum of 40, /12 Information about tax relief, limits and your pension

5 What are the carry forward rules? Here s how it works if you wanted to pay in more than 40,000 in the 2015/16 tax year. The changes mean anything already paid against the 2015/16 Annual Allowance before 9 July 2015 is disregarded, provided it was no more than 40,000, with a free additional 2015/16 Annual Allowance of up to 40,000 still available for pension savings from 9 July 2015 to 5 April So, many individuals who have already saved into their pension this year will get a second bite at the Annual Allowance this tax year. Step 1 You must pay in at least 40,000 in 2015/16. Step 2 Go back to the 2012/13 tax year and check to see what was paid in for the Pension Input Period ending in that tax year. If lower than the Annual Allowance for that tax year you have an unused allowance you can carry forward and use in the 2015/16 tax year. Step 3 Do the same for the 2013/14 tax year. Step 4 Do the same for the 2014/15 tax year. Example Tax year So, How much you paid Carry forward total = 70,000 Annual Allowance = 40,000 Total allowance = 110,000 How much you can carry forward 2012/13 35,000 15, /14 20,000 30, /15 15,000 25,000 Carry forward total 70,000 You need to have the earnings to support the payment as you can t personally pay in more than 100% of your earnings in the current tax year. If you think this is something you want to consider using please speak to your financial adviser for more details. Money Purchase Annual Allowance From 6 April 2015, if you access your money purchase funds flexibly and take anything above your tax-free cash, normally 25% of the fund, you will have a Money Purchase Annual Allowance of 10,000 and you won t be able to use carry forward in your money purchase arrangements. It s important to note that this only applies to money purchase pension schemes. For final salary (defined benefit) schemes, the annual allowance is still 40,000, and carry forward is still available. So, in the above example, there is a maximum of 70,000 that can be paid into a pension with carry forward, but because the reduced MPAA was triggered, this only applies to final salary schemes. If the individual has any money purchase pensions, the maximum that can be contributed to them is 10,000 in total. i When you first flexibly access your benefits, the scheme administrator has to provide you with a statement within 31 days. You then have to notify any money purchase schemes that you re an active member of within 91 days of receiving your statement, so that they re also aware that the 10,000 Money Purchase Annual Allowance will apply. Failure to do so will result in a fine from HMRC. If you previously flexibly accessed benefits and join a new scheme, you have to tell the scheme administrator within 91 days. However, if the new scheme is established by a transfer, it s the duty of the scheme administrator of the transferring scheme to tell the receiving scheme administrator within 31 days of the date of transfer. What happens if I pay more than I should? If you pay in more than you are entitled to you could end up with a tax charge. The rate of tax is on a variable basis up to 45%. The rate depends on the rate of income tax you would be paying if the overpayment was added to your income. It s complicated so here are some examples to illustrate how the tax works. Information about tax relief, limits and your pension 05/12

6 Example 1 Susan has a total income of 41,000 in 2015/16. She has paid in 10,000 to her pension but her employer has been particularly generous and paid in 45,000 giving a total of 55,000. However, her allowance was only 40,000, so she has an overpayment of 15,000. To work out the charge, she is allowed to deduct her personal payment to the pension from her income so: 41,000 10,000 = 31,000 However, the overpayment must be added back in to establish what level of tax is to be paid so: 31, ,000 = 46,000 3,615 of this falls into the 40% tax bracket, leaving 11,385 of the overpayment in the 20% tax bracket. 3,615 x 40% = 1,446 11,385 x 20% = 2,277 Total tax charge = 3,723 Example 2 Fred has a total income of 155,000 in 2015/16. He has paid in 30,000 to his pension and his employer has paid in 60,000 giving a total of 90,000. However, again his allowance was only 40,000, so he has an overpayment of 50,000. To work out the charge he is allowed to deduct his personal payment to the pension from his income so: 155,000 30,000 = 125,000 Again the overpayment must be added back in so: 125, ,000 = 175,000 25,000 of this falls into the 45% tax bracket, leaving 25,000 of the overpayment in the 40% tax bracket. 25,000 x 45% = 11,250 25,000 x 40% = 10,000 Total tax charge = 21,250 The tax charge should be declared and paid through your self assessment. If you think this is something that could affect you please speak to your financial adviser for more details. Losing out on tax relief Tax relief is important as personal payments made to a pension which are higher than 100% of your earnings are not eligible for that relief, meaning you will lose out on an important benefit. In fact most pension providers will simply refund personal payments which exceed the 100% of earnings limit The way in which tax relief operates will depend on the type of pension you have. Some pensions operate on what is called the gross from gross basis and others on the net from net basis. The difference being was the payment taken gross from your income before tax was calculated, or taken net after tax has been calculated. The gross basis (also known as the net pay arrangement ) means that your tax rate position is taken into account immediately. For example, if you are a higher rate taxpayer and you want to make a payment of 200 a month, 200 is taken from your income before your tax liability is calculated so the amount of tax you pay is reduced. This basis is normally used with occupational schemes provided by an employer. The net basis (also known as the relief at source method ) is different. You decide you want to physically pay 80 a month. This is the net payment and is taken from your income after your tax liability has been calculated. We then claim the basic rate relief at 20% from HM Revenue & Customs (HMRC). This means that a further 20 is then added to your pension making an overall monthly gross payment of 100. If you are a higher or additional rate taxpayer you can normally claim further relief by contacting HMRC. Using our example, this means a higher rate taxpayer can claim back a further 20% on each payment they make in a tax year. This table will help you see varying gross amounts based on the current basic rate tax relief of 20%. So if, for example, you pay 100 each month to your pension, the gross amount is actually 125. Your net monthly payment Gross monthly payment 06/12 Information about tax relief, limits and your pension

7 Retirement options You can take your retirement benefits at any age from 55. Fixed income You can buy an annuity with your whole pension pot, or you can take your tax-free lump sum and buy a smaller annuity. This will provide you with a regular income for the rest of your life. You can decide on the annuity basis and how it should be paid. You can choose: to have your annuity stay the same or increase automatically each year by a fixed percentage how often it s paid whether you want your annuity to be guaranteed to be paid for a fixed period, even if you die in that period to have a annuity paid to your spouse or civil partner if you die before them. However, once the annuity has been bought, you can t cash it in, transfer it or change these options. If you have a medical condition that reduces your life expectancy, you may be able to buy an impaired life annuity, which will use a higher annuity rate and therefore provide you with a higher income. Capped Drawdown Capped Drawdown applies to products that offer drawdown (such as SIPP). The income depends on tables provided by the Government Actuary s Department (GAD) and you can choose what level of income you wish up to a maximum. Income review up to age 75 Income review past age 75 Every 3 years Yearly* * This now starts on the first income anniversary after your 75 th birthday rather than on your 75 th birthday. If you were in capped drawdown before 6 April 2015, you can continue to have an Annual Allowance of 40,000, so long as the income you take is within GAD maximum. You can, though, convert to flexi-access drawdown. At your next review date your income levels will be calculated based on 150% of GAD tables. New capped drawdown arrangements will be unavailable from 6/4/15, when all new drawdown arrangements will be on a flexi-access basis. Flexi-Access Drawdown and UFPLS From 6 April 2015, there are two main ways of accessing your money purchase funds flexibly flexi-access drawdown and uncrystallised funds pension lump sum (UFPLS). lf you take a flexible income, you will have a Money Purchase Annual Allowance of 10,000 and you won t be able to use carry forward. If you are a member of a defined benefit scheme, your overall Annual Allowance stays at 40,000 and you can still use carry forward in that scheme. Flexi-access drawdown This type of income drawdown allows you to draw any amount from your money purchase pension fund, whenever you want provided, of course, that the scheme allows it. And, unlike the old rules under flexible drawdown, you don t need to have a minimum level of secure income. Any arrangements going into drawdown from 6 April 2015 will do so via flexi-access drawdown. Also, existing flexible drawdown arrangements automatically converted to flexi-access drawdown on 6 April Generally, you can take 25% of any benefits you crystallise as a tax free lump sum. However, unlike UFPLS, tax free cash is not limited to 25%. So, for example, individuals with scheme specific lump sum protection will still be able to take the protected tax free cash above the standard 25%. The fund, less any tax free lump sum taken, remains invested in a tax advantaged environment and you can simply draw an income directly from it, if and when they want. Any amount drawn from the fund is taxed as income. If you had a pre-retirement pot and put more of that into drawdown this will normally trigger a review of your income level for your whole arrangement. Information about tax relief, limits and your pension 07/12

8 UFPLS Using UFPLS, you can take a single or series of lump sums from your uncrystallised funds, without actually having to designate them for drawdown first. 25% of the UFPLS is paid tax free, with the balance taxable as pension income. But there are conditions that you must meet: It must be payable from uncrystallised rights held under a money purchase arrangement; If under 75, you must have enough lifetime allowance available to cover the full amount of the UFPLS; If over 75, you only need to have some lifetime allowance left when you want to take the UFPLS. But if the UFPLS is more than your available lifetime allowance, the tax free element is limited to 25% of your remaining lifetime allowance. The rest of the lump sum is taxable as pension income; and You must be at least age 55 or meet the illhealth conditions. And, you can t take such a lump sum if you have: primary or enhanced protection with protected tax free cash rights; or a lifetime allowance enhancement factor, but your lump sum allowance is less than 25% (such as from receiving a pension credit on divorce from a pension already in payment). You can find out more about the Lifetime Allowance on Page 9. If you have scheme specific lump sum protection, allowing tax free cash of more than 25% of the fund, you can t take an UFPLS from that scheme - unless you give up your right to the higher tax free cash. Triggering the 10,000 Money Purchase Annual Allowance (MPAA) There are a number of triggers for the 10,000 money purchase annual allowance (MPAA) Taking an UFPLS; Taking income from a flexi-access drawdown fund (including payments from a shortterm annuity provided from a flex-access drawdown fund); Buying a flexible annuity; Drawing a DC scheme pension (unless the scheme pays them to 12+ members); Taking a 100% stand-alone TFC using primary protection 08/12 Information about tax relief, limits and your pension

9 What happens if I die before I take my pension benefits? Death benefits, like retirement benefits, now offer a lot of flexibility. As ever, lump sums can be paid to any individual or trust that you nominate. But the rules from April 2015 no longer restrict the beneficiary of an income on your death to a dependant. This means that your pension savings can now be passed to anyone you nominate to draw an income from, while remaining in a tax privileged pension wrapper via an inherited drawdown fund. Once a drawdown fund has been created for your nominated beneficiary, they can access the pot at any age, drawing as much or as little as they choose. And they can nominate their own beneficiaries to inherit the pension pot on their death. This allows pension wealth to be cascaded down the generations, with fully flexible access, and without ever forming part of an estate until it is paid out. The following table shows how any benefits paid on your death are taxed: Age at death Benefits taken before death Taxation of death benefits Lump sum Income Under 75 None 0%* 0%* Drawdown/annuity 0%* 0% 75 and over None 45%** Marginal rate Drawdown/annuity 45%** Marginal rate * If these are not paid as a lump sum, or set up as drawdown or an annuity, within two years of us being notified of death, they will be taxed in the same way as death from age 75 but the funds won t be tested against the Lifetime Allowance. **From 6 April 2016 any lump sum death benefit paid on death from age 75 will be taxed at the recipient s marginal rate. Lifetime Allowance The lifetime allowance will reduce to 1million from 6 April From 6 April 2014 to 05 April 2016 the Lifetime Allowance was set at 1.25 million. i If you have built up tax free lump sum rights of more than 25% before 6 April 2006 you have a special calculation which includes using the current Lifetime Allowance. For this calculation only, the Lifetime Allowance remains at 1.8 million even when the calculation is carried out after 5 April Transitional Protection Enhanced and Primary Protection Between April 2006 and April 2009 it was possible for you to apply for transitional protection, either Enhanced Protection or Primary Protection. These reduced or removed the tax charge if you exceeded the Lifetime Allowance. Your financial adviser will be able to confirm if this applies to you. If you applied for Primary Protection, you will continue to have your protection calculated using 1.8 million. If you applied for Enhanced Protection, that protection can continue. Information about tax relief, limits and your pension 09/12

10 Fixed Protection 2012 When the Lifetime Allowance reduced to 1.5 million in April 2012, Fixed Protection 2012 was introduced to protect pension funds up to 1.8 million and had to be applied for by 5 April Fixed and Individual Protection 2014 With the further reduction of the Lifetime Allowance to 1.25 million from 6 April 2014, the government has recognised that people may have built up pension funds of between 1.25 million and 1.5 million based on the current rules. In this case, you had the opportunity to apply for either or both Fixed Protection 2014 and Individual Protection Fixed Protection 2014 gave a personal Lifetime Allowance of 1.5 million. To be eligible for Individual Protection 2014, your pension must be valued at more than 1.25 million at 5 April 2014 and you don t have Primary Protection. You can apply even if you have Enhanced Protection or either of Fixed Protection 2012 or Fixed Protection The value of your fund at 5 April 2014 will be protected and you ll still be able to have pension contributions paid without losing that protection. You have until 5 April 2017 to apply. Fixed and Individual Protection 2016 Two new forms of protection (Fixed Protection 2016 and Individual Protection 2016) will be created for those caught by the reduction in Lifetime Allowance in April These will mirror existing 2014 protections. Fixed protection 2016 will allow a personal LTA of 1.25million Lifetime Allowance beyond To be eligible for Individual protection 2016 your pension must be valued at more than 1 million at 5 April 2016 and you don t have Primary Protection. The value of your fund at 5 April 2016 (up to a maximum of 1.25 million) will be protected and you ll still be able to have pension contributions paid without losing that protection. Auto-enrolment From 1 April 2015, if you have any of the above forms of transitional protection, and you let your employer know, they can choose whether or not to automatically enrol you into their pension scheme. But do note that if you have Enhanced Protection, Fixed Protection 2012 or Fixed Protection 2014 and you are automatically enrolled, you must opt-out of the scheme within one month or you will lose your protection. Smaller funds There are rules which allow small stranded pots of 10,000 or less in a single pension scheme to be paid as a lump sum in certain situations. You can take up to 3 stranded pots from personal pensions. There is no limit on the number of small stranded pots that can be taken from occupational schemes. Stranded pots are not tested against the Lifetime Allowance. 10/12 Information about tax relief, limits and your pension

11 How will these changes affect me? Example 1 Jeremy has built up a pension fund over the last 25 years and it has now reached 1.35 million. He decides to retire in May He hasn t applied for any kind of protection so he has the standard Lifetime Allowance of 1.25 million. The excess 100,000 will be taxed in one of two ways: If Jeremy takes it as a lump sum, it will be taxed at 55% before payment so he will receive the net payment of 45,000 from that part of the fund. If he takes it as an income, it will be taxed at 25% however, he will also be paying income tax on that income as he receives it. Had Jeremy applied for fixed protection 2014 he would not have been liable for this extra tax. Example 2 Sylvia has also built up a considerable pension fund of 1.95 million. She, however, had applied for Fixed Protection 2012 so had a personal Lifetime Allowance of 1.8 million rather than 1.5 million. When she retires in December 2014 she will have a tax charge to pay but it won t be as much. With Fixed Protection 2012, the charge is either 55% or 25% (depending on which benefit option she chooses) of the excess: 1.95 million 1.8 million = 150,000 excess Without Fixed Protection 2012, the charge would have been either 55% or 25% of the excess: 1.95 million 1.25 million = 700,000 excess If you think you will be affected by any of the information given above, please speak to your financial adviser or a tax specialist. We recommend taking advice from a financial adviser before buying a product. Information about tax relief, limits and your pension 11/12

12 Standard Life Assurance Limited is registered in Scotland (SC286833) at Standard Life House, 30 Lothian Road, Edinburgh EH1 2DH. Standard Life Assurance Limited is authorised by the Prudential Regulation Authority and regulated by the Financial Conduct Authority and the Prudential Regulation Authority. GEN658_A Standard Life

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